Let's say that there is a home that I like, let's state that that is your house that I want to acquire. It has a price of, let's state that I need to pay $500,000 to purchase that home, this is the seller of your house right here.
I want to purchase it. I would like to buy the home. This is me right here. And I have actually been able to save up $125,000. I've been able to save up $125,000 but I would actually like to live in that house so I go to a bank, I go to a bank, get a brand-new color for the bank, so that is the bank right there.
Bank, can you lend me the rest of the quantity I need for that home, which is essentially $375,000. I'm putting 25 percent down, this right, this right, this number right here, that is 25 percent of $500,000. So, I ask the bank, can I have a loan for the balance? Can I have a $375,000 loan? And the bank says, sure, you look like, uh, uh, a nice man with an excellent job who has an excellent credit rating.
We have to have that title of the home and when you pay off the loan we're going to give you the title of the house. So what's going to occur here is we're going to have the loan is going to go to me, so it's $375,000, $375,000 loan.
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But the title of your home, the file that states who actually owns the house, so this is the home title, this is the title of your house, house, house title. It will not go to me. It will go to the bank, the home title will go from the seller, maybe even the seller's bank, possibly they haven't paid off their mortgage, it will go to the bank that I'm borrowing from.
So, this is the security right here. That is technically what a mortgage is. This pledging of the title for, as the, as the security for the loan, that's what a mortgage is. how adjustable rate mortgages work. And in fact it comes from old French, mort, means dead, dead, and the gage, implies pledge, I'm, I'm a hundred percent sure I'm mispronouncing it, however it originates from dead pledge.
When I pay off the loan this promise of the title to the bank will pass away, it'll come back to me. And that's why it's called a dead promise or a home loan. And most likely since it originates from old French is the reason we do not state mort gage. We state, home mortgage.
They're actually describing the home loan, home loan, the mortgage loan. And what I want to do in the rest https://bestcompany.com/timeshare-cancellation/company/wesley-financial-group of this video is use a little screenshot from a spreadsheet I made to in fact show you the math or in fact show you what your mortgage payment is going to. And you can download, you can download this spreadsheet at Khan Academy, khanacademy.org/downloads, downloads, slash home loan calculator, mortgage, or in fact, even better, simply go to the download, just go to the downloads, downloads, uh, folder on your web browser, you'll see a lot of files and it'll be the file called home mortgage calculator, home mortgage calculator, calculator dot XLSX.
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But just go to this URL and then you'll see all of the files there and then you can just download this file if you wish to have fun with it. But what it does here is in this type of dark brown color, these are the assumptions that you might input and that you can change these cells in your spreadsheet without breaking the entire spreadsheet.
I'm buying a $500,000 house. It's a 25 percent down payment, so that's the $125,000 that I had saved up, that I 'd discussed right over there. And after that the, uh, loan quantity, well, I have the $125,000, I'm going to need to obtain $375,000. It determines it for us and then I'm going to get a quite plain vanilla loan.
So, 30 years, it's going to be a 30-year set rate home loan, fixed rate, fixed rate, which means the rates of interest won't alter. We'll talk about that in a bit. This 5.5 percent that I am paying on my, on the cash that I obtained will not change over the course of the 30 years.
Now, this little tax rate that I have here, this is to really figure out, what is the tax savings of the interest deduction on my loan? And we'll speak about that in a 2nd, we can neglect it in the meantime. And after that these other things that aren't in brown, you should not tinker these if you actually do open up this spreadsheet yourself - how do cash back mortgages work in canada.
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So, it's actually the yearly interest rate, 5.5 percent, divided by 12 and a lot of mortgage are compounded on a month-to-month basis. So, at the end of every month they see how much cash you owe and after that they will charge you this much interest on that for the month.
It's in fact a quite fascinating problem. But for a $500,000 loan, well, a $500,000 home, a $375,000 loan over 30 years at a 5.5 percent rates of interest. My home loan payment is going to be roughly $2,100. Now, right when I purchased your house I desire https://www.inhersight.com/companies/best/reviews/management-opportunities to introduce a little bit of vocabulary and we have actually discussed this in some of the other videos.
And we're assuming that it's worth $500,000. We are assuming that it's worth $500,000. That is a possession. It's an asset due to the fact that it provides you future benefit, the future advantage of being able to live in it. Now, there's a liability against that possession, that's the mortgage, that's the $375,000 liability, $375,000 loan or debt.
If this was all of your assets and this is all of your financial obligation and if you were essentially to offer the assets and settle the debt. how do home mortgages work. If you offer the house you 'd get the title, you can get the money and then you pay it back to the bank.
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However if you were to relax this transaction instantly after doing it then you would have, you would have a $500,000 home, you 'd settle your $375,000 in debt and you would get in your pocket $125,000, which is exactly what your initial deposit was but this is your equity.
But you could not presume it's constant and have fun with the spreadsheet a bit. But I, what I would, I'm presenting this because as we pay for the debt this number is going to get smaller sized. So, this number is getting smaller sized, let's state at some time this is just $300,000, then my equity is going to get larger.
Now, what I have actually done here is, well, actually prior to I get to the chart, let me really show you how I compute the chart and I do this throughout 30 years and it goes by month. So, so you can picture that there's actually 360 rows here on the real spreadsheet and you'll see that if you go and open it up.